Later life financial planning: everything you need to know

What is later life financial planning?

Later life financial planning is the process of organising your finances to ensure security, comfort and peace of mind throughout retirement and beyond.

It covers a broad range of decisions, from how you draw an income from your pension and whether to downsize your home, to funding long-term care, minimising inheritance tax and making sure your estate is passed on according to your wishes.

Unlike general financial planning, later life planning also takes into account the practical and legal steps that become increasingly important as you age, such as setting up a Lasting Power of Attorney and keeping your will up to date.

Why is later life financial planning important?

Your retirement could, potentially, last as long as your working life. And just like your career, it will go through different stages – which will all need careful planning.

At the start of retirement, while you’re hopefully still fit and active, you may spend quite a bit of money - making the most of your free time and do the things you enjoy.

However, as the years pass, your life is likely to settle and you may spend less.

But your needs could change again towards the end of your life, especially if you need long-term care.

Most of us will need to consider at least a number of the steps below as we move into old age.

Review your pension choices

After you’ve been retired for a while, you may need to change how you access your pension(s).

If you have mainly defined contribution pensions, it’s a good idea to review your strategy every couple of years.

It’s also a good idea to review your strategy whenever there are significant changes in your own circumstances or the economy.

For instance, if you are taking income via a drawdown scheme, ask your financial adviser to check its performance and work out how much longer it’s likely to last.

Your adviser may recommend making adjustments (either to your investments or how much you withdraw) or a more radical change, such as buying an annuity.

If your priorities shift from flexibility to security in later life, this switch could give you greater peace of mind.

Your age should also mean you get a better annuity rate, and if you have health issues, you may qualify for a higher income with an enhanced annuity.

However, if you already have an annuity or a defined benefit pension currently in payment, you won’t be able to make any changes to them.

Downsizing your home

Though you may remain in the family home at least to begin with, many retirees decide to downsize at some point.

You might want to:

• Move to another part of the country

• Relocate closer to family or friends

• Find a smaller property that’s cheaper to run

• Move to a home that’s easier to manage, like a flat or a bungalow

Another big motivation for downsizing may be to release some of the value of your home. Along with your pension, your home is probably your biggest asset, so downsizing can provide much-needed funds for your retirement.

Before making any decisions, talk to a qualified financial adviser. Your adviser can help map out your spending and income over the coming years and estimate how much money you can free up.

Remember that moving house is itself a costly process; your adviser can tell you if it will really be worthwhile.

Equity release

If you’d rather continue living in the family home, you can still use it as a source of money to fund your retirement. Unlocking the value of your property while continuing to live there is called equity release.

The majority of people do this by taking out a lifetime mortgage, but you may also be able to use a home reversion plan.

Lifetime mortgages

This is a loan secured against your home. You receive a tax-free lump sum to spend as you wish, and the loan is repaid from the value of your home when it is sold (either when you die or move into a care home).

You can usually borrow between 20% and 60% of the property’s total value – typically, the older you are, the more you can release.

Just bear in mind that the loan will accumulate compound interest, so the amount that needs repaying on the sale of the home could be significantly greater than the sum you borrowed. The longer the loan lasts, the more interest you’ll pay.

Home reversion plan

This is where you sell part or all of your home to a specialist company in exchange for a tax-free lump sum.

A guaranteed lifetime lease entitles you to continue living in the property rent-free for as long as you wish. If you retain ownership of any portion of the property, you also benefit proportionally from any increase in its value.

Bear in mind that a home reversion plan will pay far less for your home than you would receive if you sold it on the open market. The minimum age is also higher for a home reversion than it is for a lifetime mortgage.

Both of these types of equity release have their advantages and disadvantages. A financial adviser can tell you which type of scheme is likely to be the best value for you, and also help you choose the best provider.

Also, be sure to pick a scheme with a ‘no negative equity guarantee.’ This ensures that you will never owe more than the sale value of your home.

Lasting Power of Attorney

It is highly advisable to set up a Lasting Power of Attorney (LPA) while you are still fit and healthy.

Should you become unable to manage your financial affairs yourself, an LPA will allow another trusted person (such as your partner or adult child) to do so on your behalf.

It’s important to note that your spouse or other family member will not have automatic access to your finances should you become incapacitated if you haven’t arranged an LPA.

The only way for them to do so would be to apply through the Court of Protection, which can be a long and frustrating process.

Remember that you can only arrange an LPA while you have full mental capacity, so you should do so well in advance. An LPA can prove invaluable at any age – not just in later life. Talk to your solicitor about setting it up.

You should also consider setting up a health and welfare LPA which covers medical and other healthcare decisions. This can also be set up by a specialist solicitor.

Once you have made an LPA, you’ll need to register it with the Office of the Public Guardian.

The fees to register an LPA are:

• £92 for one LPA

• £184 for a financial and personal welfare LPAs

Making a will

You should keep your will updated as a matter of course, but in later life it becomes even more important. Your will ensures your beneficiaries will inherit your estate according to your exact wishes.

If you die without a will, then your will be distributed according to strict rules (the rules of intestacy).

This means the wrong people could inherit your money. It will also take far longer for any beneficiaries to inherit.

Making and updating your will allows you to donate to charity and make provisions for any other intended beneficiaries who would not otherwise receive anything.

Detailed tax planning with a specialist solicitor can also help to reduce the inheritance tax bill for your family, by making sure you make use of all available exemptions and allowances.

Contact a solicitor about making or updating your will – the time, effort, and costs will save your family significant time and money later on.

Estate planning

When you die, your estate could be subject to inheritance tax (IHT) if it’s worth more than the IHT threshold. However, by planning ahead, you may be able to reduce the amount your family must pay.

You can reduce the size of your taxable estate with various methods, such as:

• Lifetime gifts

• Trusts

• Charitable giving

• A well-drafted will

• Life insurance

• Other forms of planning

Note that your pension is not currently subject to IHT, but the rules are changing. From April 2027, inherited pension wealth will also be subject to IHT.

To ensure unspent pension funds are passed on to the right people, it’s important to tell your pension provider. You can do this by completing a nomination or expression of wishes form.

Also, if you give 10% of the taxable value of your estate to charity, the overall rate of IHT that you pay will reduce from 40% to 36%.

A financial adviser can give you all the help you need with estate planning. 

Find out more about inheritance tax here.

Long-term care

Many people in their final years will need some form of long-term care. This may be in a residential home, or may simply involve a visiting carer.

If you end up needing long-term care, you will probably need to fund at least some of it yourself, and perhaps all of it. Common funding options include:

• Income (e.g. private and state pensions)

• Investments

• Equity release

• Selling or renting out your home

Another option is an immediate care plan.

Similar to a lifetime annuity, this is a product that pays a guaranteed income to cover your care bills, however long you live.

However, unlike ordinary annuities, the income is tax free because it's paid direct to the care provider.

Do I qualify for state-funded long-term care?

If you are on a low income and don’t have much in savings, you may qualify for local authority funding.

However, if your savings and assets are above a certain level (assessed via a means test), then you will have to pay for all your care yourself.

The means test and the rules for how much you need to pay for care vary according to whether you live in England, Scotland or Wales.

In England, you’ll only qualify for help with care bills if you have less than £23,250. In Scotland, you’ll get free personal and nursing care, but you may have to contribute to other costs unless you have less than £35,500 in capital.

In Wales, if you have over £50,000, you’ll need to pay all your care fees yourself.

Bereavement

If a close family member should die, it may be your responsibility to make practical and financial arrangements.

First of all, you will need to:

• Obtain the medical certificate

• Register the death

• Arrange the funeral

• Notify government organisations

Most local authorities have a Tell Us Once service so you don’t have to contact a lot of different places.

If your spouse or civil partner has died

If your spouse or civil partner dies without a will, then inheritance will follow intestacy rules. Otherwise, you will inherit according to the will. In either case, you will not have to pay any IHT. This is because transfers between spouses and civil partners are free of inheritance tax.

You may also be entitled to some or all of their pension, but it depends on the arrangement. Talk to a financial adviser if you are unsure about whether you can inherit your partner’s pension.

If you were not married or in a civil partnership

Unmarried partners, apart from civil partners, will not inherit anything unless your partner named you as a beneficiary in their will.

This is why it is vital for partners who are not married (or in a civil partnership) to make wills.

Financial arrangements after bereavement

Bereavement has many financial implications for the surviving partner. Things may be particularly difficult if the deceased partner handled some or all of the couple’s finances. In addition, the needs of the surviving partner may be different in the future.

The surviving partner may be left to sort through a great deal of financial information, which can be an additional stress at an already difficult time.

Things to consider include:

• Mortgage/loan repayments

• Pensions

• Pensions already in payment

• Savings and investments that were not jointly held

• Property and other assets

• Life insurance claim

The surviving partner may be left to sort through a great deal of financial information, which can be an additional stress at an already difficult time.

A financial adviser can take this burden off your hands and help you manage your money going forward.

Get expert financial advice

Later life financial planning is about much more than pensions.

From deciding how to draw an income in retirement, to making choices about downsizing, equity release, or funding long-term care, the decisions you make can have a lasting impact on your financial security and peace of mind.

It also extends to protecting your future through a Lasting Power of Attorney, ensuring your loved ones inherit according to your wishes with a well-prepared will, and planning ahead to minimise inheritance tax through estate planning.

These are complex and often emotional decisions that require careful thought and a clear understanding of your options.

A qualified financial adviser can help you navigate each stage, tailoring advice to your personal circumstances and ensuring you make the most of your assets.

With the right guidance, you can approach retirement with confidence, knowing that your finances, and your family’s future, are secure.

Unbiased can quickly connect you with a trusted financial adviser who will support you through every step of later life planning.